Barclays CEO Energy -Power Conference - TGS Reports/Company... · 2018-09-22 · Kristian Johansen . Barclays CEO Energy -Power Conference . CEO . 6. th. September, 2016

Kristian Johansen

Barclays CEO Energy-Power Conference

CEO 6th September, 2016

©2016 TGS-NOPEC Geophysical Company ASA. All rights reserved.

2

All statements in this presentation other than statements of historical fact, are forward-looking statements, which are subject to a number of risks, uncertainties, and assumptions that are difficult to predict and are based upon assumptions as to future events that may not prove accurate. These factors include TGS’ reliance on a cyclical industry and principal customers, TGS’ ability to continue to expand markets for licensing of data, and TGS’ ability to acquire and process data products at costs commensurate with profitability. Actual results may differ materially from those expected or projected in the forward-looking statements. TGS undertakes no responsibility or obligation to update or alter forward-looking statements for any reason.

Forward-Looking Statements


3

Introduction

Market Overview

TGS Strategy

Organic Investment Activity

Q2 2016 Financial Highlights

Appendix (financial information)

Agenda


4

The World’s largest geoscience data company Traded on Oslo Stock Exchange, part of OBX Index (25 most liquid shares) Headquarters in Oslo and Houston (Operational) Regional offices in London, Perth, Calgary, Mexico City and Rio de Janeiro

The Leading multi-client data library covering frontier & mature basins ~3,000,000 km 2D data, ~500,000 sq. km 3D data and ~8,600,000 digital well logs Other data types include CSEM, multibeam, coring, gravity, magnetic, interpretive products Strategy to enter frontier regions, grow library and apply new technologies as basin matures

Asset light and multi-client business model Flexibility through no vessel ownership – few long-term capital commitments Investment decisions driven by financial returns rather than asset utilization Client relationships – leading global sales & marketing team; exploration partner to E&Ps

Solid balance sheet backing TGS strategy No debt and strong cash position allow counter-cyclical investment Average dividend yield of 4.2% over last seven years 10-year average return on capital employed of ~40%

This is TGS


5

Introduction

Market Overview

TGS Strategy




Agenda


6

Year on Year decline in spending Second consecutive 20%+ decline in E&P spending

expected this year Impact on exploration budgets expected to be larger

Near-term volatility expected Seismic demand likely to remain weak through 2016 Near-term, greater variability of demand between

quarters and across regions Seismic spend will likely be prioritized in existing

program areas that have premium economics

2017 E&P spending under pressure Most initial E&P Spending surveys indicate further

decline in spending

Challenging Market for Exploration

6

Change in Global E&P Spending

Source: SEB Research C

hang

e ye

ar-o

n-ye

ar (%

)

7

16

23

3

-25

8

16

6

21

27 23

26

19 22

-8

15 19

14 11

2

-26 -27

-10

-30

-20

-10

0

10

20

30

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

E20

17E


7

Brent oil has remained volatile though within a relatively tight band Oil prices in a $40-$50 band since March, following the

rebound from January lows, Continuation of this trend expected in the near-term Lower-end of range likely to be supported by solid demand

and reduction of oversupply since highs in 2015 Cap on high-end due to US producers ability to respond

quickly to improved economics

US Rig Count Up from Lows The US rig count and permitting activity shows close

correlation to oil price movements Despite near-term volatility, the US is likely to be an area that

sees a material increase in activity if oil prices stabilize at $50+

Volatility Expected to Continue

$30

$35

$40

$45

$50

$55

$60Volatility within a Band likely to Continue

Brent Oil Price

0

1,800

3,600

5,400

7,200

9,000

0

500

1,000

1,500

2,000

2,500US Drilling Rig Count and Permits

US Rig Count (left axis)US Drilling Permits - Approved (right axis)


8

Global Oversupply Moderating Global oversupply is anticipated to continue to moderate

through 2017 from a Q4 2015 high Market balance from Q3 2017 but supply response continuing

to create volatility

Need to Replace / Grow Reserves Only 2.7bn barrels of new conventional oil supply was

discovered in 2015, the lowest since 1947 (Wood Mackenzie) Combined with increasing demand, lack of new discoveries

will drive increased exploration spending as oil companies look to replace/grow reserves – the key question is timing

Long-Term Demand Increasing Global energy demand is expected to grow about 25% by

2040 driven by non-OECD countries Oil and natural gas expected to meet ~60% of global energy

demand in 2040

Long-Term Outlook Positive

8

0.5 0.7

0.4

1.9 1.7 2.0

1.4

2.4

1.2 0.9

0.5 0.6

0.1 0.2

-0.6 -0.3

Global Production / Consumption (mn b/d)

Source: EIA


9

Seismic sector has underperformed financially ROCE below cost of capital Capital intensive and low entry barriers Critical product for end-user

Gradual shift from proprietary to multi-client Seismic contractors taking more risk E&Ps tendering seismic acquisition as multi-client Higher prefunding but potentially lower returns

Fragmented market offering consolidation opportunities Number of players constant since peak despite seismic

spending falling by 2/3 Consolidation would provide the industry significant benefits

over the course of cycles

Key Trends in the Seismic Industry

0.01.02.03.04.05.06.07.08.09.0

10.0

2010 2011 2012 2013 2014 2015 2016-E 2017-E

Seismic Spending (BUSD)

Other DP/Imaging Multi-Client Contract

38% 38%

40% 38%

45%

63% 59%

Source: S&P Capital IQ; TGS

-5%

0%

5%

10%

15%

20%

25%

2007 2008 2009 2010 2011 2012 2013 2014 2015

Seismic* Return on Average Capital Employed

*Global marine seismic industry excluding TGS

Source: Fearnley Securities; TGS


10

Areas with Faster Payback will Likely Recover First

Bre

ak-e

ven

oil p

rice

Payback

Chart highlights areas that are likely to see incremental seismic activity first as market conditions improve

First movers will be areas with the best economics, or a combination of break-even oil prices and payback period

Although initial focus will be on first mover areas, TGS will maintain a portfolio approach to investments to capture higher-return opportunities in more frontier regions


11

Introduction

Market Overview

TGS Strategy




Agenda


12

TGS Strategy: Cost Efficient, Focused and Quickly Reacting!

Energy Starts with Us! TGS will be THE leading energy information company with the

BEST people, quality and service!

Counter-cyclical investment

React quickly to right size the company

Portfolio strategy with strict minimum

investment targets

Reward structure drives strong

alignment

Investment focus in areas of low break-even oil price, fast payback and client activity

Fast and flexible business model & track record, reacting quickly to capture advantage

Partner to access technology and share

risk

Solid balance sheet backing TGS strategy

Consolidate and focus on core

business


13

Reacting quickly to right size the company Operating costs down 30% year-on-year Operating costs down 51% since 2014 Variable pay drives alignment with staff

Strong correlation between cash inflow and cash outflow Investment down 54% to MUSD 230 Large reduction in vessel rates since peak Prefunding of investments stable at 40-45%

Fast & Flexible Business Model

13

-40

-30

-20

-10

0Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16

MU

SD

Personnel and Other Operating Costs*

* Adjusted for restructuring costs and larger impairments of operating items

0

200

400

600

800

1,000

MU

SD

Free Cash Flow Cash inflow Cash outflow

Cash Outflow correlates to Cash Inflow


14

Balance sheet remains healthy through down-cycle Cash balance per Q2 2016 of 162 MUSD Undrawn Revolving Credit Facility of 75 MUSD

Strong share price relative to sector TGS market capitalization of 1.8 BUSD Represents ~58% of industry (ex-SLB) Strong currency to explore inorganic investment opportunities

Solid Balance Sheet Backing TGS strategy

14

823

1167

255

37 162 171 68

66

Assets Equity and Liability

Multi-client Library

Receivables

Cash

Other Goodwill

Equity

Non-current liabilities

Current liabilities

Assets Equity & Liability

1,829

547

522

171 67

27 16 8 3

TGS CGG PGS SPU ION PLCS EMGS MCG SBX

Market Capitalization (in USD millions)


15

Long-term value creation track-record Annual total return of 11% since IPO in 1997 Well above both the oil service segment and the general

stock market

Counter-cyclical investment Strong cash generation is enabling the company to both

invest counter-cyclically as well as paying dividends to shareholders

Policy of paying dividends in line with long-term underlying cash flow Aim to keep a stable quarterly dividend through the year

(measured in USD) Actual quarterly dividend level paid will be subject to

continuous evaluation of market outlook, cash flow expectations and balance sheet development

Solid Value Creation Over Time

15

Share price development*

* Values in NOK, adjusted for dividends ** Current OSX components that have traded since TGS IPO (equal weighted)

0100200300400500600700800900

1,0001,100

Avg. annual return since TGS IPO in 1997

TGS 11.4% S&P 500 7.7% Oil Services** 5.8%

4 NOK

5 NOK 6 NOK

8 NOK 8.5 NOK

8.5 NOK

USD 0.15 per Quarter

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

2010 2011 2012 2013 2014 2015 2016*

USD

per

sha

re

Year of Payment * Quarterly Dividends, defined in USD from 2016 Historical NOK dividends converted to USD using FX rate on ex-dividend date

Q3

Q2

Q1

Dividend paid* (2010 – 2016)


16

Introduction

Market Overview

TGS Strategy




Agenda


17

Q3 Investment Focus


18

R360 eCommerce tool enables simpler integration of geologic data with customer systems

Data reconnaissance, identification and selection through a map-based interface with online purchase and data delivery

Digital Petrodata GEONEWS Oil & gas industry data for E&P, financial and investment community professionals

Deep tagging of articles allows creation of very focused queries and email alerts

Data is spatially located with detailed attributes and analysis functionality

TGS Launches New Digital Information Products

Please visit www.tgs.com for a free trial of GEONEWS!

http://www.tgs.com/


19

Free cash flow generation Consistency in delivering product quality Significant cost efficiencies Intense client focus

2016 Key Objectives


20

Introduction

Market Overview

TGS Strategy




Agenda


21


190

298

172 140 169 132 64

114

050

100150200250300

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Total Revenues

3% Y/Y

71 111

37 38 46 31 -19

24

-40%

-20%

0%

20%

40%

60%

-50

0

50

100

150

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

EBIT *

EBIT EBIT Margin* Earnings before interest and taxes and excluding larger

impairments and restructuring costs

84 15

110

-76

49 -20

63

-35

-100

-50

0

50

100

150

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Free Cash Flow *

* Defined as cash flow from operational activities minus operational cash investments in multi-client projects

NSA 52%

Europe 27%

AMEAP 9%

Other 12%

Q2 2016 Revenue Distribution


22

Summary Signs of improvement in oil companies’ willingness to invest in seismic data during Q2 2016,

however, the market is expected to remain challenging and volatile in the near term Long term fundamentals continues to be positive

Global oversupply moderating Need to replace / grow reserves Long-term demand increasing

Asset-light, focused multi-client strategy continues to outperform

Cost control, disciplined counter-cyclical investment and balance sheet strength positions TGS to enhance its leading position

Updated 2016 guidance: New operational multi-client investments of approximately 230 MUSD

Additional multi-client investments expected from sales of existing surveys with risk sharing arrangements

Multi-client investments are expected to be prefunded 40% to 45%

Thank you


Kristian Johansen CEO


24

Introduction

Market Overview

TGS Strategy




Agenda


25

9 9

6 5 5 5 3 3

0

2

4

6

8

10

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Proprietary revenues

130

226

72 82 90 90 38

84

0

50

100

150

200

250

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Late sales revenues

3% Y/Y

51 62

94

53 74

37 23 26

0

20

40

60

80

100

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Prefunding revenues

190

298

172 140 169 132

64 114

0

50

100

150

200

250

300

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Total revenues

Net Revenues

-50% Y/Y

-33% Y/Y -18% Y/Y


26

NSA 51%

Europe 19%

AMEAP 16%

Other 14%

Q2 2015

NSA 52%

Europe 27%

AMEAP 9%

Other 12%

Q2 2016

Net Revenue Breakdown

2D 15%

3D 75%

GPS 10%

Q2 2015

2D 48%

3D 42%

GPS 10%

Q2 2016

26


27

32 37

25 24 22 28

18 17

05

10152025303540

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Operating expenses *

-30% Y/Y

* Include personnel costs and other operating expenses. Adjusted for restructuring costs and larger impairments of operating items

81 143

105 74 99

230

62 69

0

50

100

150

200

250

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Amortization and impairment *

84 15

110

-76

49 -20

63

-35

-100

-50

0

50

100

150

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Free cash flow *

Operating Expenses, EBIT, Free Cash Flow

62% - rate

71 111

37 38 46 31

-19 24

-40%

-20%

0%

20%

40%

60%

-40-20

020406080

100120

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

EBIT *

EBIT EBIT Margin

* Q1 and Q2 2016 reflects the new amortization policy effective from 1 January 2016

* Earnings before interest and taxes and excluding larger impairments and restructuring costs

* Defined as cash flow from operational activities minus operational cash investments in multi-client projects


28

837 818 876

919 976

839 830 823

700

750

800

850

900

950

1,000

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Multi-client library - NBV

93 126

163 116 135

88 53 62

0%10%20%30%40%50%60%70%80%90%100%

0

50

100

150

200

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Pref

undi

ng ra

tio

Ope

ratio

nal i

nves

tmen

ts

Operational investments and prefunding ratio

Operational investments Prefunding ratio

Multi-Client Library

17%

1% 4%

8%

17%

1%

52%

0% 0% 7%

19% 21%

9%

44%

0%

10%

20%

30%

40%

50%

60%

Fullyamortized

2012 2013 2014 2015 2016 YTD WIP

Net revenues Net book value

Net revenues vs net book value – year of completion

270

381

609

427

122

451

0

100

200

300

400

500

600

700

2012 2013 2014 2015 2016 YTD WIP

Original investments Net Book Value

20 %

34%

52%

22%

1% 14%

70%

Investments – year of completion


29

Q2 2016 Income Statement USD million, except EPS Q2 2016 Q2 2015 Change in %Net revenues 114 140 -18%Cost of goods sold – proprietary and other 0.8 0.1 1435%

Amortization of multi-client library 62% 69 74 -6%

Gross margin 44 66 -33%Personnel costs 11 17 -37%

Other operating expenses 9 9 -3%

Cost of stock options 0.3 0.9 -61%

Depreciation 3 3 -7%

Operating profit 19% 22 36 -39%Net financial items -0.3 2 -116%Profit before taxes 19% 21 37 -43%Taxes 5 13 -65%

Net Income 15% 17 24 -31%EPS, Undiluted 0.17 0.24 -29%

EPS, Fully Diluted 0.17 0.24 -29%


30

Q2 2016 Cash Flow Statement USD million Q2 2016 Q2 2015 Change in %Received payments from customers 28 141 -80%

Payments for operational expenses (19) (25) 25%

Paid taxes - (29) 100%

Operational cash flow 9 86 -89%Investments in tangible and intangible assets (1) (3) 57%

Investments in multi-client library (44) (162) 73%

Interest received 0.3 2 -82%

Interest paid (0.3) (0.003) -10467%

Dividend payments (14) (99) 86%

Proceeds from share issuances 2 0.03 5271%

Change in cash balance -48 -175 73%


31

Balance Sheet USD million Q2 2016 Q1 2016 Change in % Q4 2015AssetsCash and cash equivalents 162 210 -23% 163Other current assets 255 189 35% 308Total current assets 417 399 5% 471Intangible assets and deferred tax asset 92 92 0% 90Other non-current assets 16 16 3% 25Multi-client library 823 830 -1% 839Fixed assets 26 28 -7% 30Total Assets 1,375 1,364 1% 1,455LiabilitiesCurrent liabilities 171 168 2% 218Non-current liabilities 4 5 -9% 6Deferred tax liability 33 29 14% 33Total Liabilities 208 201 3% 257Equity 1,167 1,163 0% 1,198Total Liabilities and Equity 1,375 1,364 1% 1,455

Documents

Barclays CEO Energy -Power Conference - TGS Reports/Company... · 2018-09-22 · Kristian Johansen . Barclays CEO Energy -Power Conference . CEO . 6. th. September, 2016